Nepal sees lowest FDI among least developed countries

According to the latest World Investment Report 2010 published by United Nations Conference on Trade and Development (UNCTAD), the trade, investment and development body of the UN, Nepal is at the bottom on the list of “Least Developed Countries” in attracting foreign investments.

The report said that from 1990-2008, Foreign Direct Investment increased in all the least developed countries except Nepal, Burundi, Eritrea, Samoa and Timor-Leste. It also said that the contribution of FDI to the economy of the LDCs’ has been rising since 1990 and further accelerated after 2000 due to rise in commodity prices, economic reforms and creation of new investors in the developing countries.

In Nepal, FDI inflow started in the 1990s. It was the best period of FDI in the country’s history. Investors were attracted due to a series of economic reforms making the policies, acts and regulations more liberal such as removing the requirement of import licenses, full convertibility of the Nepali rupee, introducing flexible policies for joint-venture financial institutions, introducing new Foreign Investment and Technology Transfer Act. Due to the good flow of FDI, Nepal’s economy grew at an average 5.2 percent per year from 1992-1996.

According to Bhola Chalise, Former Industry Secretary, political instability is driving away investors from the country. He said, "In the last seven or eight years, we've neither stability in politics nor better infrastructure including power,"

After the fall of King Gyanendra, there was a renewed interest among foreign companies and in

FY 2007-08, Nepal received FDI worth Rs.9.81 billion, the highest in the last twenty years but then the interest gradually faded.

Increasing power of trade unions, poor law and order situation and most importantly the conflict of the political parties made it very difficult for foreign investors to invest in the country.

Nepalese women are the top tobacco consumers in the world

In a survey conducted by National Health Education, Information and Communication Center, Nepal, Nepalese women came out as the top tobacco consumers in the world. Around 20 percent of Nepalese women consume tobacco.

Badri Bahadur Khadka, a senior health education administrator said that previously, women in remote village areas used to consume tobacco but now many modern day educated women consume tobacco and the trend is growing.

This high consumption has serious effects along with causing different types of cancers, TB and other tobacco related diseases and many other health problems.

Dr. R.P. Baral of Bhaktapur Cancer Hospital said that he had found many women who smoke up to 40 sticks of cigarettes a day. He said that smoking more than half a pack a day would cause infertility and irregular menstrual cycles and smoking during pregnancy would cause serious complications, premature labour, infant mortality and miscarriage.

For this reason, the World Health Organization defined smoking during pregnancy as a crime.

What is interesting is that tobacco consumption is growing in developing countries while declining in developed countries. In a survey conducted by the Ministry of Finance it has been found out that cigarette production in Nepal in 2007-08 was 1079.9 million sticks while in 2008-09 it was 120070 million sticks followed by 131000 million sticks in 2009-10.

Cylinder explosions in Nepal: People are blaming politicians and government officials

Explosion of Liquefied Petroleum Gas (LPG) cylinders has become a major problem in Nepal now a days.

News reports said that more than 30 percent of the LPG cylinders supplied in the country are of poor quality and would explode any time. Gyaneshwor Aryal, President, Gas Dealers Federation Nepal said, "About 4 million gas cylinders are currently in circulation in the country, out of which 30 percent (1.2 million cylinders) haven 't passed through a hydrostatic test to check the quality of the cylinders. These cylinders can blow up anytime,"

He further said that 300,000 out of the 30 percent cylinders are sent to the market without being tested properly which causes majority of the explosions. In addition, sub-standard cylinders, old valves, and damaged-regulators cause cylinder explosions.

What makes the matter worse is that the suppliers use sub-standard materials which make the cylinders more prone to leakage.

In a recent interaction on Syndicate, Security and Increasing Politicisation in Gas Industry, the speakers said that “over-politicisation” in goods and services sector has become a major threat to the lives of people in the country. The interaction took place on August 16, 2010.

According to Jyoti Baniya, General Secretary, Consumer Rights Protection Forum, corruption among politicians, misappropriation and irregularities are the main reasons behind such mishaps.

However, political leaders said that they are committed not to play with the lives of the people.

Nepal Oil Corporation officials go on strike over importing oil from Barauni refinery

The staff of the Amlekhgunj depot of Nepal Oil Corporation (NOC) went on a strike over bringing oil from the Barauni refinery of Indian Oil Corporation last week. In their 13-point memorandum, they want the government to stop import fuel from the Barauni refinery of Indian Oil Corporation (IOC) in Bihar.

The employees of NOC Amlekhgunj depot are saying that temperature difference between Barauni and Amlekhgunj is the main reason behind fuel loss worth millions of rupees.

Shiva Adhikari, General Secretary, Nepal Oil Corporation Employees’ Organizations said, “When the temperature decreases by a single degree, it leads to a loss of nine litres of fuel. Since, there is a difference of almost 10 degrees between Amlekhgunj and Barauni, each tanker registers almost 90 of fuel loss,……That is the reason why Amlekhgunj depot had registered an unaccounted loss of Rs 29.3 million, which led to the suspension of the entire staff..”

Due to record fuel loss, government accused employees of the Amlekhgunj depot of stealing oil. In 2009, a high-level probe team was formed to look into the irregularities of NOC Amlekhgunj depot. In its report, the team said that the head of the Amlekhgunj depot, his deputy, and other officials are involved in this embezzlement and stole Rs.29 million showing technical loss.

The case is still under investigation by Commission for Investigation of Abuse of Authority (CIAA) and NOC board initially suspended 21 employees including six officers, and fired three others working on contract basis on charges of corruption.

This strike would severely affect Nepal’s economy because almost two third of oil is supplied by the Amlekhgunj depot.

Clash with farmers and owners caused indefinite shutdown of tea factories in Jhapa

More than a dozen tea factories in Jhapa district, located in the Terai region of Nepal, have been shut down due to dispute over prices with local tea farmers. On August 5, 2010, the Association of Tea Producers, declared an indefinite closure.

Earlier in July, a similar clash between farmers and tea factory owners took place forcing factory owners to shut down their plants. At that time, a new agreement was signed between farmers and factory owners on July 13, 2010.

The Association of Tea Producers is accusing the farmers of breaching the accord. On the contrary, farmers are claiming that price of tea leaves would increase according to the agreement.

Dhruba Kumar Siwakoti, President, The Association of Tea Producers, said that a number of entrepreneurs including Chandi Parajuli, Viswanath Shrestha, Santa Ratna Shakya and Dhruba Kumar Siwakoti had escaped from their homes after the farmers tried to lock them in. Siwakoti also said that the entrepreneurs cleared all payments of the farmers and said that they do not owe any money to the farmers.

Lekh Nath Pokhrel, Chief district officer, Jhapa district, said that they had already written to the local Police to provide security to the entrepreneurs.

Purna Kumar Kakri, President, Association of Small farmers said that they have not received any payments for the last five months. He said that they would not withdraw their protests until the entrepreneurs pay them the price they demanded for their tea leaves.

Nepal’s new Monetary Policy is a boon for banks and housing developers

Nepal’s new policy has been a big boost for the country’s housing developers and banks. The new monetary policy, which was announced on July 28, 2010, by Nepal Rastra Bank, would allow banks and financial institutions to lend 25 percent to the housing sector and 15 percent to the real estate sector. However, the total loan exposure in real estate and housing should not cross more than 40 percent.

As per the December 2009 directive of NRB, Banks and financial institutions should downsize their loan exposure to real estate and housing to 30 percent by the end of this fiscal year.

The move was taken to control the rapid expansion of the country’s realty sector. NRB ordered the banks to limit their loan exposure to real estate to 25 percent of their total loan portfolio.

Till date, the total loan exposure in housing and real estate is Rs. 98billion accounting for 21.07 percent of the total lending of the banks which stands at Rs.465 billion.

Because of this announcement, the amount of housing loan would go up while the real estate sector loan would decline. The change was made by NRB after it received complains from banks and financial institutions and housing developers.

Nepal President announced the date of budget session

On June 29, 2010, Nepalese President, Ram Baran Yadav, as per Prime Minister Madhav Kumar Nepal’s recommendation, announced the date of the budget session. The upcoming budget session would be convened on July 5, 2010. The president’s office sent a letter to Speaker Subas Chandra.

Speaker Subas Chandra told the Prime Minister to convene the budget session in the first week of June but it was deferred in the hope that the three parties would reach a consensus. Then the Prime Minister told the Speaker and the President to fix a suitable date for the budget session. The current fiscal year will end on July 16, 2010.

Normally, the President of the country presents the policies and programs taken up by the government. This is followed by the budget estimates and vote on account Bill.

The Himalayan Times reported that Speaker Subas Chandra and Prime Minister had a meeting where they discussed about the budget session. Constituent Assembly Chairman, Subhash Nembang, told the reporters that the two discussed about the budget session and the implementation of the agreement reached among three parties on May 28, 2010. The agreement says that the PM would step down immediately once the parties agree on implementing the remaining tasks of peace process and various issues related to the new constitution.

However the Unified Communist Party of Nepal (Maoist) (UCPN-M) said that the government decision to call the session was unilateral and “against the interim constitution” which would initiate further confrontation in the Parliament.

Nepalese exporters are demanding to make CoO certification optional

Eleven Nepalese business organizations are urging the government to make the issuance of Country of Origin (CoO) certificate optional for the exporters as the Generalized System of Preferences (GSP) certification is enough.

The Kathmandu Post reported that on June 22, 2010, at a press meet, Naresh Das, President, Export Council of Nepal said, “Since Nepal is already a member of the World Trade Organisation (WTO), there is no need of CoO in most importer countries,……GSP itself works as CoO. There are only a few countries that seek this sort of certification.”

Nepal is a member of the World Trade Organization (WTO). The GSP is provided by WTO under its “trade facilitation theory” to boost exports of the Least Developed Countries (LDC) and help them to compete in the international market. Under GSP, developed countries provide various facilities including zero or low import duty on products coming from developing countries.

At the press meet, exporters said that Nepal does not need CoO certificates to export in 25 countries including Canada, Australia, Japan, New Zealand, the US or Russia.

Currently, the exporters are required to pay NPR 0.12 on every NPR.100 export to the CoO issuing organization. The organizations are demanding either the government make CoO optional or pay 80% of the CoO for promotional purpose as per the rules of WTO.

Nepal government introduced new regulations for loan sanctioning under YESEP

In order to reduce the risk of loan sanctioning under the Youth and Small Entrepreneur Self-Employment Programme (YESEP), new regulations have been proposed by the parliament. Till date, banks had to sanction loans considering the project as collateral.

Under the new proposal, instead of government officials overlooking the fund, it would be considered as a project.

As per the report of The Kathmandu Post, the proposals have been sent to the cabinet for approval.

The YESEP was introduced by the Maoist-led government and the UML-government is continuing it. A total of Rs.3 billion has been allocated under this project. Bishnu Prasad Lamal, Joint Secretary of Finance Ministry, oversees YESEP.

Sashin Joshi, President, Nepal Bankers Association, said that the banks did not provide loans for applicants did not meet their standards.

Mr. Joshi said that his bank had been seriously thinking about investing in the handicraft sector under the YESEP programme.

About half a million people applied when the programme started. Out of them, 2,75,000 people received training to become eligible for receiving loans under the program.

Government just started the implementation of the project by distributing rickshaws among rickshaw pullers so that they can buy their own rickshaws. KIST bank of Nepal has taken this initiative.

Is Nepalese Economy Heading for a Major Crisis?

I just finished reading this report in Nepal news: Economy heading towards crisis: Dr Mahat

This announcement has come from Former Finance Minister Dr Ram Saran Mahat. So, when someone like him says this kind of thing then we have to take it seriously. Mr. Mahat has stated some facts about the economy:

Remittance is down

FDI has decreased around one third

There is a serious liquidity crisis

Export revenue has fallen

All these are serious problems and if they continue then Nepalese economy will surely head for a major crisis. Now, the economy needs some bold initiatives from the government and this is not possible because of the ongoing political instability.

I personally think that political fighting is the major problem for the country. If political stability does not come then the economy will only continue to suffer. 

Tourism Sector in Nepal gets a Boost from no Strike Pledge

Tourism is perhaps the most important sector for Nepalese economy when it comes to earning foreign exchange. It is a beautiful country full of natural beauty and rich history. Nepal is the birthplace of Buddha and for this matter alone, it has the potential to attract thousands of visitors from around the world. There are several major obstacles and political instability is perhaps the worst thing for the growth of tourism in any country. Now, the political parties have pledged ‘no strike’ for the welfare of this sector.

Sify Wrote:

Sixteen major parties of Nepal, including the opposition Maoists who are seeking a change in the government, pledged not to enforce any general strikes or violent protests as Prime Minister Madhav Kumar Nepal Friday kicked off a campaign that seeks to bring at least 1 million tourists in 2011.

A 'peace lamp' that was lit Sunday in Lumbini town in southern Nepal, the birthplace of the Buddha, the apostle of peace, was brought to Kathmandu by five marathon runners who have represented Nepal in the Olympic Games in the past, to kick off the campaign for Nepal Tourism Year 2011.

I am not very hopeful about this ‘no strike pledge’ because there is deep division among political leaders in the country. This pledge looks like a political stunt to me. Still, I am very happy with it simply because the political parties have started to realize that people are not very fond of strikes and political instability. They want development of economy in the country. 

No Hope for Nepalese Economy Until People Unite

It is just over one year that Nepal totally abolished monarchy and became a democratic republic. The expectations were huge one year ago but for most people, hardly anything has changed. The political condition has not improved and the same goes for the economy of the country. There is hardly any hope among the people. However, the people have to realize a very important thing: they have to be united for the national interest or else nothing will change or improve.

The country has not got yet any kind of political stability. In fact, the Maoist government could not survive more than one year and now, there is a new government in power. This is a coalition consisting of more than 20 parties. It is needless to say that when 20 parties are in a coalition then political stability is the last thing you can expect. The Maoists are in opposition and we have already seen that they have taken a strategy to remind everyone about their strength and popular support through carrying out a lot of protests in different parts of the country. There is no doubt that a significant portion of the population is behind them.

The ruling government is a mixture of parties of all backgrounds. The current Prime Minister Madhav Kumar Nepal comes from Communist Party of Nepal (Unified Marxist-Leninist). Naturally, this party should have been with the Maoists but they are now with other parties. In 2008 Constituent Assembly election, Communist Party of Nepal (Unified Marxist-Leninist) was in the third position. They have some dedicated supporters.

Nepali Congress has been the largest political party in the country for the last 5-6 decades. In election 2008, they suffered an unexpected setback and were in second position behind the Maoists. Nepali Congress has strong organization base in all over the country.

Madhesi Jana Adhikar Forum, Nepal was in 4^th position in the election and they are a regional party. They are strong in the Terai region.

Then, there is the former King Gyanendra and his supporters. You should not rule them out because they have close ties with the Nepalese army. Not only that, for many generations, Gyanendra’s family was closely related to the major religious activities and that is why, they have some sympathetic supporters among the religious groups. For the last one year, Gyanendra was more or less silent about political affairs. It seems that he is planning to make a comeback in the political scenario. It will not be difficult for him because the parties who threw him out of power are themselves bitterly divided.

The economy is suffering because of political instability and global economic recession. However, I do not see any hope for the economy because of deep political division among the parties. As I stated earlier in this entry, the political parties and even the King has some loyal and dedicated supporters among ordinary people. This matter is hurting the economy more than politics. The major challenges for the Nepalese economy are:

Extreme Poverty

Unemployment

Illiteracy

Shortage of Electricity and Fuel

Impoverished rural areas with no infrastructure

It is true that these problems cannot be solved overnight. For this, a strong government is needed at the center. At least, a stable government is a must to fight against any of these problems. If the ministers are busy in fighting for their own survival then naturally, they will not have any time to fight against such big problems.

I don’t think that the political leaders would become noble and suddenly they would decide that there would be no fighting. It does not happen at least in third world countries. So, the ordinary people have to realize this simple matter that if any improvement has to happen for the economy then the first precondition is that the people have to become united.

Smart Telecom: A New Mobile Phone Operator in Nepal

Nepal may not be a country that all the time catches the attention of international media for economic issues but it has some kind of peace and stability at this moment. So, it is also a very good time for economic activities and there is going to be a new mobile phone operator in the country called Smart Telecom. I tried to find the website of this mobile phone operator but could not do it. So, if you know the website address of Smart Telecom then let me know when the comment section.

The company has just got the license to provide mobile phone service in the country and they’re going to start the service is very soon.

My Republica reported:

Smart Telecom, which acquired the license to provide telecom services after depositing a fee of US$39,500, is a joint venture between Nepali, Singaporean and Israeli companies. Lal Sahu Distributions Limited of Singapore has 70 percent stake in the company, while Square Network Nepal and Gilat Satellite Networks of Israel have 20 percent and 10 percent shares, respectively.

As per the commitment expressed by the company during the time of acquiring the license, it will have to first introduce services in 398 VDCs in remote areas of western, mid-western, far-western and central regions.

There is a still a lot of room for growth in the mobile phone sector of the country as tele-density is not that high. Most people are poor and live in the rural areas and there is a very big market to catch.

Impact of Global Economic Recession on Nepalese Economy

If you are a regular visitor to this blog then you should know that I have covered a lot about the economic recession that is going on at this moment in the whole world. When we’re talking about the global recession, most of the time, mainstream media talk about rich and developed countries like America, Canada, Australia, England, France, Germany and so on. We hardly talk about the impact of the recession on poor third world countries like Nepal. I do not know the reason but I feel frustrated to see such poor coverage on countries like Nepal at the mainstream media. Today, I’d like to talk about the impact of the ongoing global economic recession on Nepalese economy.

Current Condition of Nepal

I feel that the condition of Nepal is stable at this moment compared to the past two decades. Nepal is now a democratic Republic and it has a mixed economic system in which there is a private sector but the public sector is very strong. There are some political and regional tensions but as I stated earlier, the condition is much better compared to the last two decades. The Communist Party of Nepal (Maoist) is leading a coalition government and the government is under pressure from the people to perform and ensure economic development. A Maoist led government is perhaps not ideal for the growth of the private sector but the country is doing fine at this moment.

Until now, there is little indication that the economy of Nepal is suffering from the implication of the global economic crises but I feel that it is about to happen.

Nepalese Economy: Some Basic Information

First of all, if you do not have idea about the exporting activities of the country then I would like you to visit this link: Economy of Nepal. Carpets and Ready Made Garments (RMG) are two of the most important exporting commodities. Apart from that, the country also exports from other agricultural items. Also, tourism is a very important source of earning foreign exchange just like manpower export to Malaysia and the Middle East. The foreign aid is also an important factor in the economy. About 40% people are very poor and unemployment rate is very high. Hunger, unemployment, illiteracy- all of them exist in larger scale in the country. Nepal is still an agriculture based economy. India is the major and most important trading partner both in terms of export and import.

Impact of Recession on Export Sector

The positive thing for Nepalese economy until now is that export revenue for the first four months of the current fiscal year has increased significantly. However, you have to remember that the economic recession has started to hurt the global economy seriously in the last few months. America is an important market for the garments industry of Nepal. So, any economic slowdown there will have some kind of negative impact on the industry. Carpet is beautiful but it is considered to be a luxury item in many countries. Even before economic recession, I saw reports indicating that export revenue from garments and carpet was declining.

Tourism

You may have doubts whether the export revenue will be seriously affected but I have no doubt that tourism of the country will suffer because of the economic recession. I could see a report today that that arrival of tourists in January 2009 decreased sharply (15.8% less compared to the same period of last year). Most tourists come from the neighboring countries like India. The condition of the economy in India is also not good either and that is why, I do not think that there will be a significant increase of tourist arrival from India. The same perhaps goes for Europe and America where people are less likely to travel foreign countries at this time when they are worried about their future and job security.

Manpower Export

This is a sector which has surely been affected by the global economic recession already in Nepal. Remittance is very important for neighbors of Nepal like India, Bangladesh, Sri Lanka and Pakistan. Nepal joined the manpower export bandwagon a bit late compared to these 4 neighbors. Now, Nepalese workers in Malaysia and UAE are facing uncertain future. You know that many projects in Dubai are getting closed and that has decreased the demand of Nepalese workers. Malaysian government is also cutting the number of foreign workers. In the last few weeks, almost 150,000 Nepalese workers lost their jobs in Malaysia and the Middle East. Also, the number of workers going abroad for job has decreased a lot too in the last few weeks.

Foreign Aid

Nepal imports more than it exports. So, the economy depends a lot on foreign aid. At this moment, the government needs some foreign aid badly to implement its development projects. Well, rich countries are now themselves suffering and it may become some difficult for them to keep the current amount of foreign aid to developing countries like Nepal.

Indian Factor

Nepal is a landlocked country and it is heavily dependent on India for communication and foreign trade. India is the major foreign trade partner in both and export and import. Nepalese people can go to India without any passport and work there. Indian economy is now suffering because of the global recession. So, there is fear that Nepalese economy may suffer from the bad condition in India too.

Oil Price

The only respite that can come to Nepalese economy is perhaps the decrease in global fuel price. In the last 3 years, the people in this country suffered a lot. Many times, they went to the street to protest against high fuel price. Well, the government was helpless too as Nepal is not an oil producing country.

(This entry was originally posed in February 2009. It got deleted for technical problem. Now, I am again posting it today).

I have tried to analyze the possible impact of global economic recession on Nepalese economy. Do you agree with my analysis? Do you have anything more to add? Please, do it by leaving a comment.

$782 Loan from World Bank for Nepal

I have repeatedly been saying that if peace has to sustain in Nepal then the country needs economic support from the international community. Poverty and unemployment are the two major basic problems of the country. There is no doubt that the country needs a lot of loans on easy condition. I am happy to see that it is going to get a healthy amount of money as loan from World Bank.

Reuters reported:

Under the interim strategy, the World Bank’s private sector lender could potentially commit an additional $15 million to $20 million annually during the two-year period.

“The Bank’s strategy document supports the promotion of consensus and unity to address key elements of the peace process, including the foundations for state building, growth, and improved basic service delivery for Nepal’s poor,” the World Bank said in a statement.

Nepal is now in a process of creating a new constitution that will perhaps bring more human rights to the people. What I feel is that the ordinary people will have to become more proactive about political matters. The country does not have a sizable educated middle class population and that is why democracy is fragile.

(This entry was uploaded a few days ago in this blog and then it got deleted for technical reason. Now, I am again posting it.)

Bird Flu Scare in Nepal

I wrote 2 days ago about detection of bird flu virus (H5N1) in Nepal. Well, it seems that many farmers are now worried about the possible outbreak of bird flu disease on a larger scale. The government is worried too.

The farmers are worried because in any case, they will suffer most. The worst part of a bird flu outbreak is that most people become afraid of eating any chicken or even egg. I don’t blame them because I also reacted almost similar fashion in 2006 and 2007. So, the farmers suffer huge loss as a result. Many of them lose their everything. Well, as for the government, it is even a matter of graver concern. The government has to think of the impact of bird flu not only on the poultry industry but also on the overall economy of a country.

(This entry was first published in February 2009. Because of a technical problem, the entry had to be deleted and I am reposting again now.)